Goals, resolutions and targets are usually set by many people in the new year. It’s great if these work for you. However, why not focus on improving your cash flow – cash is king after all, isn’t it?

With a robust policy for any credit allowed to your customers, let’s hope that you don’t find yourself in this situation – but most businesses will find from time to time that a customer hasn’t stuck to the deal!

I’m sure that you’ll have a range of procedures to be followed in these circumstances, from a polite reminder to ceasing instructions or supplies until the account is up to date. Probably referring the matter to your solicitors will not be first on the list, but sometimes there’s no option. That said, it could well be the case that a letter from your solicitors will produce results, as your customer may realise that you mean what you say! A word of advice here – if you send a letter saying the next step is legal action, put a time-scale and stick to it. There’s no point in threatening legal action and then not taking it.

Well, let’s suppose you’ve reached that stage. What next?

The government have proposed a new Pre-action Protocol, with the intention of cutting down the number of claims issued and the number of defences put forward for relatively trivial reasons. The proposal has been through an extensive consultation process and the protocol is now expected to be introduced in 2017. The latest version attempts to strike a balance between the needs of debtors, creditors and debt advisers.

How does this affect you?

Whether you use a solicitor or issue a claim yourself in the County Court, the first stage is a Letter Before Action. If you are doing the claim yourself, this will be the letter you write saying something like ‘if we do not receive settlement in full within the next 7 days (or acceptable proposals for settlement) we shall proceed to recover through the Court’.

The new pre-action rules, which creditors must observe before issuing a claim, are expected to include a more detailed Letter Before Action, whether this comes from the creditor or his solicitors. It is likely that this must include:

  • Details of the debt (including a full statement and interest calculations)
  • A notice informing the debtor of the right to documentation, although it is believed that it will not be necessary for a copy of the written contract to be included.
  • An explanation why court proceedings are being considered
  • A reply form and self addressed envelope that the debtor can use to respond

You will also be obliged to consider Alternative Dispute Resolution and give the debtor at least 28 days to pay or reply to the Letter Before Action.

As you can see, you will no longer be able to rely on a ‘blanket’ letter.

I understand that there has been a lot of criticism of the proposals, first on the grounds of expense in implementing detailed letters and secondly of the delay in allowing the debtor 28 days to respond.

The final form of the new rules is expected shortly. In the meantime, do let me have your views!